A：In the third quarter, IBM delivered strong results with revenue growth accelerating to 7%, the highest in several years. The company's adjusted EBITDA grew by 22%, and operating earnings per share increased by 15%. Free cash flow for the year to date was $7.2 billion, marking the highest 9-month free cash flow margin in reported history.

A：IBM's growth strategy is centered around hybrid cloud and artificial intelligence, which fuel growth and productivity for clients. The company is focusing on products and services in these areas to drive results.

A：IBM's software segment growth accelerated to 9% in the third quarter, with automation leading the way at 22%. The segment's end-to-end portfolio of leading solutions, infused with AI, drove cost efficiency and resiliency for clients.

A：AI is a key productivity driver for IBM, contributing to strong financial performance. IBM set a goal to achieve $4 billion in productivity savings, and it is well ahead of that, with an expectation of $4.5 billion in annual run-rate savings exiting the year. AI is also a strategic service for clients, with over 1,000 engagements in 'Client Zero' and a broad range of offerings that are differentiating IBM in the market.

A：IBM's Tech Exchange conference, with nearly double the number of participants compared to the previous year, showcased innovation that blends enterprise strength and AI speed. The event included contributions from industry speakers and highlighted new capabilities such as Project Bob for AI-driven software development and new automation features that include a real-time infrastructure graph using HashiCorp's tools.

A：IBM announced a partnership to run Watson X and grok, providing ultra-high-speed, low latency AI capabilities at lower costs. The company demonstrated tangible progress, including the first error-corrected quantum computer by 2028, and collaborations with over 280 partners for near-term use cases. These efforts have led to notable improvements in bond trading predictions and portfolio optimization for clients.

A：IBM has raised its expectations for the full year, anticipating revenue growth of more than 5% and free cash flow of about $14 billion.

A：IBM has experienced nine consecutive quarters of operating pretax margin expansion, with revenue scale mix and productivity driving a 120 basis point increase in operating gross profit margin, a 290 basis point increase in adjusted EBITDA margin, and a 200 basis point increase in operating pretax margin. This is well above model segment profit margins, with infrastructure, software, and consulting all showing significant improvements. IBM Z contributed significantly to profitability and free cash flow, combined with the 3 to 4x stack multiplier, which aids in innovation and growth investments. Productivity is also a key driver as AI is deployed across IBM to improve efficiency and reduce costs. As of the end of the year, IBM is expected to achieve 4.5 billion dollars of run-rate savings, and there is still potential for further efficiency and cost savings. In terms of free cash flow, IBM generated 7.2 billion dollars, up about 600 million dollars year over year, marking the highest year-to-date free cash flow margin in reported history.

A：IBM's approach to capital allocation is a focus on maintaining a strong liquidity position, having a solid investment-grade balance sheet, and applying disciplined capital allocation policies. This has resulted in returning 4.7 billion dollars to shareholders through dividends and a balance sheet with cash of 14.9 billion dollars and total debt of 63.1 billion dollars, including 11.3 billion dollars of debt for its fencing business with a predominantly investment-grade receivables portfolio. This financial discipline contributes to IBM's ability to invest in growth initiatives and maintain a robust balance sheet.

A：IBM has updated its financial expectations for the year based on strong performance and has raised its guidance. The company now expects revenue growth of more than 5%, adjusted EBITDA growth of mid-teens, and free cash flow of about 14 billion dollars for the year. This is an improvement from previous projections and is underpinned by a diverse portfolio, disciplined capital allocation, and a relentless focus on productivity. Full-year growth expectations include approximately double-digit revenue growth for the segments that were below expectations in the first nine months, with continued strength in IBM Z and revenue growth anticipated for the fourth quarter. This updated guidance reflects IBM's confidence in its strategy and execution.

A：The specific figures for organic growth in software in the third quarter were not provided in the transcript. However, the company's guidance for transaction processing going into the end of the year indicates that despite a 1% year-to-date decrease, there is an expectation of double-digit revenue growth in the fourth quarter, suggesting an improved outlook for this segment. The focus remains on accelerating revenue growth, operating leverage, and efficient balance sheet management to drive long-term sustainable competitive advantage.

A：The minimal impact of the government shutdown on IBM's business is attributable to the composition of the company's technology business, which is largely comprised of hardware and software, with a focus on essential services such as critical system operations for payments, Social Security benefits, and VA services.

A：AI is contributing to IBM's growth by powering the company's offerings, which has led to a strong backlog in AI-related consulting projects. This focus on AI has not only bolstered software growth but has also been a key factor in the recovery of consulting business, contributing to the overall return to growth for the company.

A：IBM's current outlook for software revenue growth includes a forecast of returning to growth in transaction processing in the fourth quarter and continued growth in areas such as automation and the data and AI portfolio. While specific acquisition impacts were discussed in the context of past acquisitions like HashiCorp, the company expects to continue acquiring growth through new targets, assuming favorable market conditions and regulatory environments.

A：The diversity of IBM's portfolio is positively impacting the company's growth by positioning it well in various areas of technology innovation, such as hybrid cloud modernization, AI, and automation. This strength and diversity, which has been repositioned over the last few years, now aligns with higher growth markets, providing a strong growth trajectory for IBM as it enters 2026.

A：IBM plans to leverage M&A by continuing to sell the investment narrative, which will drive a higher organic growth engine through synergies from acquisitions, leading to accelerated top line and bottom line growth, accretive value, and free cash flow in two years.

A：The growth rate mentioned for 2026 is not explicitly stated in the transcript, but it is implied to be organic and not including M&A, as the speaker mentioned that the growth rates discussed are largely organic without significant M&A. However, the speaker also notes that small M&A deals are included, but any substantial M&A would accelerate those growth rates.

A：IBM partners deeply with hyperscalers such as AWS, Azure, and GCP, leveraging their infrastructure for clients' needs. This allows IBM to deploy software on these infrastructures and undertake consulting projects, leading to revenue growth in both consulting and software.

A：AI infrastructure growth benefits IBM's mainframe and storage portfolio, with the latest generation mainframe capable of performing 450 billion inferences per day, fueling infrastructure growth. Additionally, AI training requires significant storage, making IBM a direct beneficiary of hyperscale growth in AI capabilities.

A：IBM's software model is projected to grow with an organic growth rate approaching double digits, with contributions from disciplined capital allocation and M&A, and an additional boost from a strategic opportunity with Hashi Corp in the current year.

A：IBM approaches M&A by considering targets within a multi-year window, looking at excess cash flow, financial flexibility, and potential synergies with existing strategies. They focus on areas like hybrid cloud and AI and look for targets that meet specific criteria, including strategic fit, growth rate above standalone, and accretive to cash flow within two years.

A：For IBM to pursue an acquisition, the target must align with their strategy, create synergies resulting in growth above the standalone entity's rate, and become accretive to cash flow by the end of the second year. IBM does not rule out larger acquisitions but insists that they must meet all outlined criteria.

A：Enterprises are beginning to adopt AI through ISV and SaaS applications to get exposure to AI and agents. However, the real value comes from integrating existing applications. Companies are concerned about data integration and are deploying AI in private data centers or private instances of the cloud for protection. Industries like banking and insurance, healthcare, and telecom tend to keep data and applications in-house, while marketing might be outsourced to the public cloud.

A：The approach to AI adoption in enterprises is still in the early stages, likened to the first innings of an enterprise AI rollout. There is an expectation for increased usage of SaaS AI, public cloud AI, and private AI as it becomes more integrated into critical applications and agents.

A：IT budgets have been growing ahead of GDP, typically two to three points ahead, and are expected to continue staying healthy. This growth is not at the expense of other areas but rather by allocating more budget towards new projects. The ratio of spending on operations to new projects is shifting towards a more balanced 60/40 split.

A：The AI portfolio, including automation and hybrid solutions, is contributing to growth as it allows companies to substitute labor and services with software capabilities. This shift is a result of operators becoming more efficient at running and maintaining operations while directing more resources towards new projects.

A：The breakdown between software and consulting in the AI book of business is not explicitly detailed, but it is implied that there has been a notable contribution from both segments to the overall growth.

A：The book-to-bill ratio has been below 1 in the recent past, which is unusual as it indicates that billings have exceeded bookings. However, the reason for this is offset by the fact that a significant portion of recent signings, around 30%, are for AI, which are longer-duration projects. Consulting is a major driver of this ratio, and the recent number being below 1 should not be a source of worry.

A：The growth trajectory of the consulting business is showing marked improvement with a growth of 2% and a continuation of opportunities for growth as clients accelerate investment in AI-driven transformation. There is momentum around key metrics such as backlog, new business bookings, strategic partnerships, and productivity.

A：Positive developments in bookings and revenue growth are attributed to a healthy backlog position, strong client commitment, quality of delivery, and differentiated offerings. New business penetration has shown tremendous improvement with over a 10% year-over-year increase in net new business. Additionally, revenue growth is being supported by a diverse portfolio with over 9.5 billion dollars in bookings for consulting and 1.5 to 2 billion dollars in software.

A：Red Hat has shown performance with 12% growth and is positioned well with a subscription-based business growing in the high teens. The company has booked significant values in OpenShift, virtualization, and Ansible, contributing to a robust pipeline and future outlook. Despite facing tougher comparisons in the fourth quarter, there is a projected acceleration in growth with solid double-digit growth in Red Hat and a nice composition of where the acceleration is expected to occur.